Semi-annual report 2008 >>>>>>>>>>>>>>

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1 Semi-annual report 2008 >>>>>>>>>>>>>>

2 Delticom AG Selected key figures Revenues m thousand 121, ,985 ecommerce - share of sales in % New customers thousand Customer base thousand 2,272 1,624 Revenues Germany m thousand 43,041 41,279 Revenues other EU countries m thousand 61,494 48,196 Revenues USA and rest of world m thousand 16,998 12,510 Total operating revenue m thousand 122, ,554 Gross profit margin (1) in % Earnings before interest and taxes (EBIT) m thousand 5,571 5,449 EBIT Margin (2) in % Earnings before taxes (EBT) m thousand 6,056 6,041 Consolidated net income m thousand 4,103 3,743 Earnings per share in m Dividend paid in m Cash flow from operating activities m thousand 9,101 5,763 Cash and cash equivalents m thousand 36,397 34,874 Balance sheet total m thousand 95,466 88,996 Subscribed capital m thousand 3,946 3,946 Equity ratio in % Average number of employees Revenues per employee m thousand 1,538 1,416 Personnel expenses m thousand 2,501 2,088 Personnel expenses ratio (3) in % Marketing expenses ratio (4) in % (1) Gross profit to total operating revenue in %, (2) Consolidated earning before interest and taxes (EBIT) to revenues in %, (3) Personnel expenses to revenues in %, (4) Marketing expenses expenses to revenues in % Delticom stock - key information German Securities Code Number (WKN) ISIN DE Reuters / Bloomberg DEXGn.DE / DEX GR Type of shares No-par value registered shares Segment Amtlicher Markt (official trading), Prime Standard, Frankfurt Indices CXPR, NISAX, GEX Share capital in m 3,946,480 Number of shares 3,946,480 Free float (1) in % Initial listing 26 October 2006 Closing price on 2 January 2008 in m Closing price on 31 July 2008 in m High / Low in m / Share performance (3) in % Average trading volume per day (XETRA) shares 2,872 Market capitalization (3) m million Coverage Buy 4 Overweight 1 Outperform 1 Sell 1 (1) according to definition of Deutsche Börse AG, (2) based on closing prices, (3) on 31 July 2008

3 Overview of the First Half of % Revenues up to m121.5 Mio. (previous year: m102 Mio.) +20 % Revenues from ecommerce up year-on-year EBIT increased from m5.4 million to m5.6 Mio. This corresponds to an EBIT margin of 4.6% More than 340,000 new customers in 2008 so far, customer basis grown to 2.2 million 22,100 service partners worldwide, more than 5,400 in Germany alone

4 >> Delticom AG HALf year report 2008 Europe s leading online tyre retailer 93 online-shops in 35 countries North America Europa Asia Russia < USA < Canada < Austria < Belgium < Bulgaria < Croatia < Cyprus < Czech R. < Denmark < Estonia < Finland < France < Germany < Greece < Hungary < Ireland < Italy < Latvia < Liechtenstein < Lithuania < Luxembourg < Monaco < Norway < Poland < Portugal < Romania < Slovakia < Slovenia < Spain < Sweden < Switzerland < The Netherlands < United Kingdom < Japan

5 >> Profile Delticom is Europe s leading online tyre retailer. Founded in 1999, the Hanover-based company has 93 online shops in 35 countries, among others the ReifenDirekt domains in Germany, Switzerland and Austria, and Delticom offers a wide range of products for its private and business customers: more than 25,000 models from over 100 tyre brands for cars, motorcycles, commercial vehicles and buses, but also complete wheels, motor oil, replacement parts and accessories. Delticom s customers enjoy all the advantages of modern ecommerce: convenience in order placing, quick, efficient delivery, clear cost information and, last but not least, low prices. The products are delivered in 2 3 business days to any address the customer chooses. Alternatively, Delticom delivers the tyres to one of more than 22,100 service partners (5,400 in Germany alone) for professional fitting directly on to the customer s vehicle at a reasonable price. Due to its cost-efficient operations, Delticom is able to combine growth and profitability. In 2008 the company intends to build upon its position as the leading online tyre dealer and demonstrate that Delticom has a firm grip on this dynamic market. Contents Delticom s Shares 2 Business Conditions and Economic Factors 5 Business Situation 5 Financial Position and Results of Operations 9 Risks 12 Forecast 12 Consolidated Balance Sheet 14 Consolidated Income Statement 16 Consolidated Cash Flow Statement 17 Statement of Changes in Shareholder s Equity 18 Consolidated Notes 19 Notes to the Consolidated Interim Financial Statements 19 Financial Calendar

6 >> Delticom AG HALf year report 2008 > Delticom s Shares Shareholder structure Shareholder Structure in % Binder GmbH Prüfer GmbH other related parties Free float The free float according to the definition of Deutsche Börse AG is 47.72%. Market trend Delticom share price 2008 saw strong losses on the stock market. The SDAX dropped sharply: The index closed on July 31, 2008 at 4, m points - a loss of % since the beginning of the year. Delticom s share price started 2008 at m49.30 and closed on July 31, 2008 at m The lowest price in the corresponding period was m37.05 (on April 3, 2008), the highest price was m49.30 (on January 2, 2008). Although the stock s performance in this year until now was negative (- 9.1%), the stock nevertheless outperformed the relevant indexes, especially the retail index CXPR (- 35.1%). 100 % Delticom SDAX TecDAX 90 % 80 % 70 % 60 % Jan 2008 Feb Mar Apr May Jun Jul 2

7 100 % Delticom CXPR CXPA 90 % 80 % 70 % 60 % 50 % Jan 2008 Feb Mar Apr May Jun Jul Analyst coverage The following analysts publish regular updates on Delticom s performance (in the order of initiation of coverage): Broker Analyst Estimates 2008 Estimates 2009 Recommendation Target Sales EBIT EBIT EPS Sales EBIT EBIT EPS Name Focus price (m) (m) (%) (m) (m) (%) Dresdner Georg Remshagen Smalland Midcaps Buy NordLB Frank Schwope Retail Sell Metzler Jürgen Pieper Automotive Buy Lehman Nadine Al Kassar Retail Overweight Sal, Opp Markus Sander Internet Buy Exane Andreas Inderst Midcaps Outpeform Berenberg Lars Dannenberg Smalland Midcaps Buy % % 3.27 (estimates and target prices as of August 12, 2008) 3

8 >> Delticom AG HALf year report 2008 > Investor Relations Investor Relations in the first half of 2008 were mainly focused on talks with institutional investors. Delticom roadshowed in London, Paris (each twice), Frankfurt, Copenhagen, Zurich and Geneva (each once). In addition, Board members had one-on-one meetings with many shareholders and potential investors. Delticom publishes any insider information that directly affects the company without delay, including ad hoc publicity outside the recurring financial reportings. In addition, Delticom s management comments important developments in conferences for shareholders, potential investors, analysts and the financial press. Publications and presentations are made available in the download section of Investor_Relations. Also available is the financial diary which is updated as soon as the dates of events (e.g., annual report, interim reports and the General Meeting) become available. The IR team will continue to provide timely information to the shareholders, investors, the capital markets and the public. (IR-Contact see page 26) 4

9 Business Conditions and Economic Factors 1 Business Situation 1.1 Group Structure and Operations Divisions Delticom was founded in Hanover in The company is Europe s leading Internet tyre retailer. It operates in two divisions: ecommerce and Wholesale. Most of the group s revenues are generated by the ecommerce division. Delticom has well-established Internet domains which are popular within the relevant target group. The company offers its private and business customers a broad product range: car tyres, motorbike tyres, truck tyres, bus tyres, rims, complete wheels (pre-mounted tyres on rims) as well as selected car replacement parts and accessories such as snow chains, catalytic converters and engine oil. The main product line is car replacement tyres; the range covers more than 100 tyre brands and 25,000 tyre models. For fitting the tyres on the vehicle the customer can choose from over 22,100 service partners worldwide, more than 5,400 in Germany alone (as of July 22, 2008). Delticom generates a large share of its revenues by selling from own inventories. The business with stocked articles strengthens the relationships with manufacturers and enhances the supply capability, while generating good margins. Using drop-ship fulfilment, the company also sells goods from the warehouses of manufacturers and wholesalers: Either the tyres are transported directly from the supplier to the customer, or Delticom lets parcel services carry out the delivery. The online shops present the entire product range in a consistent look and feel. Delticom s Wholesale division sells tyres to wholesalers in Germany and abroad Markets Delticom s online shop which generates the most revenues is - a well-known brand in the German online tyre business. In addition, the company sells its products in almost all countries in Europe. Operations in Europe are not restricted to EU member states, but also include countries such as Switzerland and Norway. Delticom also sells tyres outside Europe, especially in North America, with the main focus on the USA. The group operates in 35 countries with 93 online shops. Revenues and profits grew significantly last year, both in Germany and internationally Key Economic Factors Internet tyre sales are driven by two important factors: the development of the tyre market and the purchasing behaviour of internet users. 5

10 >> Delticom AG HALf year report 2008 > The German and European Replacement Tyre Business The world tyre trade consists of two distinct markets: the first supplies tyres for brand new vehicles while the second is focused on providing replacement tyres. Worldwide, these two markets sell approximately 1 billion tyres annually for all types of vehicles. For Delticom it is the replacement tyre market, which accounts for about three-quarters of total worldwide tyre sales, that is relevant to the company s business model. According to figures provided by the German Tyre Dealers Association (BRV), consumers purchased 41.5 million tyres from German dealers in 2007 with winter tyres making up 20.4 million of this total. In Germany, but also in the Alps and northern Europe, seasonal weather conditions - and the corresponding change from summer to winter tyres that comes with them - have a key influence on tyre sales. Most drivers tend to purchase their winter tyres after hearing reports of the season s first snowfall of the season. As a result, tyre sales are typically very good in November and December, making the final quarter the year s strongest. With winter tyre sales concentrated at year s end, volumes usually fall off early in the new year and leave first quarter sales relatively weak. In contrast, the second quarter typically sees stronger sales as the pleasant weather of April and May inspires many drivers to make the switch to summer tyres. Not surprisingly, third quarter sales often decline from the previous quarter, while the change from fall to winter weather conditions at the outset of the fourth quarter sees the cycle begin again. Evidence of the relatively weak role played by economic fluctuations - compared to weather conditions - in influencing sales in tyre market is found in the fact that at a time when rising consumer prices are helping depress new car sales, the sale of replacement tyres has held steady or even grown. Replacement tyres are a key auto component. Past consumer practice shows that regardless of their personal economic situation, tyre buyers seldom compromise on the quality of tyre they purchase, but respond to economic pressures by spending more time shopping around for the best possible price The Internet: An Increasingly Important Distribution Channel In the past several years, internet use by adults has grown considerably. According to a 2008 representative online study by the German public broadcasters ARD/ZDF, million (or 65.8%) of German adults are now online, an increase of 1.9 million over 2007 (62.7%). These findings are supported by the research found in the 2008 (N)onliner-Atlas which reports that 42 million Germans now use the internet regularly. Internet use is growing at comparable rates in other European countries. If one considers the age of internet users, it is above all the group of very active young users which holds the greatest growth potential for all internet sales-based business. This group navigates the net with great confidence and comfort and is already used to the idea that shopping is something one does online, not just at the supermarket around the corner. Another increasingly active segment of internet users are the Silver Surfers, a term used to describe web users over 50 years of age with significant discretionary funds at their disposal. ecommerce already makes up a significant portion of overall internet usage. According to a study by Hohenheim University (Stuttgart), the number of Germans using the internet to purchase goods and services rose from 600 thousand in 1998 to 33 million this year. Even with this incredible growth, however, it remains clear that ecommerce has not yet begun to exhaust its potential. 6

11 Two factors are behind the internet s ever increasing importance as a platform for individuals to transact their business. First, customers benefit from lower prices and second, merchants selling online are typically able to achieve higher profit margins than their bricks-and-mortar-based competitors. The relative importance of the internet as a distribution channel is reflected in the German statistics: In 2007, more than 18 billion Euros worth goods and services were sold online in this country alone. And online merchants are predicting further significant growth this year, with a survey conducted by the ecommerce Working Group of the Federal German Association of Digital Enterprise (BVDW) suggesting its membership expect sales growth for 2008 to hit almost 18% ecommerce in the Tyre Trade: Considerable Potential Currently the share of tyres sold via the internet is comparatively low. The BRV has estimated that in 2007, 4% of direct-to-consumer tyre sales were made online (2006: 3%). Another indicator of how online tyre sales are developing in Germany is provided by Tyre Monitor 2008, an annual study conducted by the General German Automobile Club (ADAC). Here, in answer to the question Where did you make your last tyre purchase?, 3.1% of those polled responded The internet (2007: 2.5%). With respondents between 18 and 39, the figure rose to 6.1% (2007: 4.8%). This report also suggests that the market can expect to accelerate quickly in the future, for when asked if they intended to make future tyre purchases over the internet, 15.6% of respondents answered Yes (2007: 15.1%). Here too there was a marked difference between the average respondent and those in the younger, internet savvy age group with the latter group answering in the affirmative 28.1% of the time (2007: 26.4%). While the above figures are from the German market, we contend that the strong growth of the onlinedistributions channel is not a German phenomenon as the number of internet connections continues to grow worldwide. And as this growth takes place, the customer readiness to buy tyres online grows along with it. With its strong internet presence and international profile, Delticom is well positioned to both drive and benefit from the consumer shift towards online tyre purchases. 1.2 Course Of Business Overall Economic Situation The global economy continued to develop positively in the first half of 2008, although dramatically increased prices for energy and raw materials contributed to slower growth. Investors continued to show concern for the continued effects of the subprime mortgage and real estate crises in the United States as well as the continued strength of the Euro. Germany, with an economy largely oriented towards export markets, was not unaffected by these developments. While the effects of these factors have been relatively small to date, the overall economic situation in Europe can fairly be characterized as unstable. Shrinking consumer confidence has eroded people s willingness to make purchases and, as energy prices continue to reach new all time highs, a recession has become a realistic possibility. The replacement tyre market is not cyclical. As a result, overall market conditions had no discernible effect on Delticom s business during the reporting period. 7

12 >> Delticom AG HALf year report 2008 > Key Events Relating to Business After a difficult 2007 in the German tyre market, first quarter results for 2008 also failed to meet expectations. Again, this was primarily due to weather conditions at the beginning of the year. In almost all the key winter tyre markets, the first months of 2008 saw little or no snow fall with the result that European tyre dealers sold significantly viewer winter tyres than in However, as weather conditions varied considerably throughout the many markets served by Delticom with its international business model, the company was again able to partially compensate for weaker sales in some countries (e.g. Germany) with growth in other markets. The onset of the summer sales season was also delayed by unseasonably cool conditions throughout March and into April, weather which caused many drivers to delay their purchase of summer tyres. With the belated rise in temperatures throughout April, the summer sales season gradually gained momentum with summery May weather finally elevating sales figures significantly. As a result of these factors, the BRV is predicting the car tyre sales for the first half of 08 in the German market will fall year-over-year by - 7.5%. The weather dependency of the replacement tyre market were also reflected in the changing prognoses for the first half of the year. In March, before the long period of cool weather, the German Tyre Dealers Association (BRV) predicted a modest increase in year-over-year sales. When the weather began to improve in April, analysts at the Deutsche Bank too forecast a recovery for economy as a whole, but still predicted lower year-over-year retail sales. After April s weather failed to live up to expectations, however, the BRV revised its stance and warned that the trade should brace itself for a zero-growth situation. The ups and downs of the weather-dependent tyre market are made clear in the graphic below: Jan Feb Mar Apr May Jun Jul Difference between daytime high air temperatures (2008 minus 2007; positive: 2008 warmer, negative: 2008 colder) at Frankfurt/Main Airport: January 2008 less snow and warmer, no early onset of summer 2008, April 2008 much colder than 2007, summer temperatures begin only in May 2008 Through marketing measures and a flexible pricing policy, Delticom is able to respond effectively to any changes which weather conditions may bring to the tyre market. 8

13 2 Financial position and results of operations 2.1 Earnings Revenues Growth As the European market leader, Delticom once again increased its revenues significantly during the period under review, up +19.2% from m102.0 million in H1 07 to m121.5 million. Revenues rose +9.4% in the first quarter (from m38.9 million to m42.6 million) - relatively slight growth as a result of the base effect, as revenues in Q1 07 were relatively high (up +52.3% compared to Q1 06) due to the snowfall in January (winter tyres) and the warm March (summer tyres). Although the conditions for the second quarter of the current year were also relatively poor due to the late start to the summer season (in part only at the end of April), Delticom was still able to increase its revenues by +25.2% in Q2 08 from m63.1 million to m78.9 million. This revenue growth is the result of an opportunistic strategy, limited to Q2 08: expanding European market shares in a difficult market environment via increased marketing and supporting pricing. Revenues in the key ecommerce division increased by +20.0% from m94.1 million in H1 07 to m112.9 million in H1 08. Revenues in the wholesale division totaled m8.6 million in the period under review (+9.3% after divisional revenues of m7.9 million in H1 07). Revenues in Germany scarcely grew in H1 08 compared to the same period of the previous year while international revenues improved considerably. The Group recorded increased sales figures and increased market penetration in almost all of its 93 online shops in 35 countries. Overall, in the reporting period, Germany generated revenues of m43.0 million (+4.3% compared to the same period of the previous year), while in the other EU countries revenues were m61.5 million (up +27.6%) and in the remaining countries these reached m17.0 million (up +35.9%). The key factors for the positive growth in the ecommerce division were the significant broadening of the customer base (with customers defined as someone who has made a purchase at least once during the period under review or in previous years). In the ecommerce division, the customer base increased over a 12-month period (from June 30, 2007) from around 1,624 thousand customers to 2,272 thousand customers on June 30, Delticom gained approximately 342 thousand new customers during the period under review, with the number of newly acquired customers in the second quarter increasing +16% compared to Q2 07 despite the relatively unfavorable weather conditions (Q1 08: - 5.7%). It is also particularly pleasing that during the reporting period 133 thousand repeat customers again made a purchase from Delticom. 9

14 >> Delticom AG HALf year report 2008 > Key Expense Positions The increase in the cost of sales by +18.7% from m77.9 million in H1 07 to m92.4 million in H1 08 is due primarily to higher revenues. The relatively slight historical improvement in the cost of sales ratio from 76.4% to 76.1% is not due to the change in input prices, but is mostly due to the price policy selected by Delticom in its business with end customers (see also the comments on changes in the gross profit margin). Across the reporting period, Delticom employed an average of 79 persons with 81 in the firm s employ as of June 30, 2008 (June 30, 2007: 80). The personnel cost ratio (ratio of personnel expense to revenues) increased slightly to 2.1% compared to the same period of the previous year (H1 07: 2.0%). Delticom has tyres it sells collected from its warehouses by logistics companies who transport these to the customers. Higher business volumes resulted in an upturn of transportations costs of m +2.2 million (+27.6%). The share of transportation costs to revenues totalled 8.3% (H1 07: 7.8%). The main reason for the upturn was the increase in the proportion of foreign revenues, for which the proportionate transport costs are generally higher than for business in Germany. Marketing costs totalled m2.8 million in the period under review. This represents a marketing expense ratio (marketing expenses as a percentage of revenues) of 2.3%, after 2.2% in the corresponding period of the previous year. The marketing expenses ratio increased significantly to 2.1% in Q2 08 from 1.8% in Q2 07 in line with the aim of gaining market shares. The hotline and select parts of the customer and supplier processes were outsourced to external service providers. In the reporting period, the costs for the operations centers increased by +49.6% from m1.3 million to m2.0 million. This was due to the high wage cost levels in the countries in which the operations centers are located. Furthermore, in 2008 the operations centers took over activities that had not been outsourced in It is of this reason that in relation to revenues, operation center costs increased to 1.7% of revenues (after 1.3% in the corresponding period of the previous year) Earnings Gross Profit Gross profit increased year-on-year by +23.4% from m24.7 million to m30.5 million. This represents an upturn in gross margin from 24.1% to 24.8%, due to a further improvement of purchasing conditions and optimized end customers prices. In the reporting period, more tyres (relative to the total amount) were delivered from company warehouses to the end customer than in the previous year. This resulted in a further improvement in the gross margin. As at least some direct costs were passed on to the customers in the context of the price calculation, the gross margin also increased slightly against the previous year due to the increase in such costs. 10

15 On a quarterly basis, the gross margin in Q2 08 of 24.5% was lower than in Q1 08 (25.2%) at as the selling prices in select regions were cut slightly in parallel to increased marketing activities, in order to reach the sales targets that had been set in these regions. The two divisions - ecommerce and Wholesale - generate different gross margins. As in the previous quarter, the ecommerce division s gross margin of 25.3% (H1 07: 24.8%) was higher than the 11.3% achieved by the Wholesale division (H1 07: 13.1%) EBIT and Consolidated Net Income Consolidated earnings before interest and taxes (EBIT) improved in the reporting period by +2.2% to m5.6 million (H1 07: m5.4 million). The return on sales based on EBIT is 4.6% (H1 07: 5.3%). The financial result in H1 08 fell by % compared to the corresponding period of the previous year from m0.6 million to m0.5 million as the average available amount for investments was lower due to the higher capital lock-up for working capital (current assets less cash and cash equivalents and trade payables). Consolidated net income for the period under review was m4.1 million or m1.04 per share (basic). Earnings per share thus increased +9.6% against the H1 07 figure of m0.95. The EPS calculation is detailed in the notes (see page 19). 2.2 Financial Position and Net Assets The companies non-current assets totalled m2.7 million on June 30, 2008 or just 2.8% (June 30, 2007: 3.1%) of total assets. In the current assets, inventories accounted for m40.6 million, or 42.6% of total assets (June 30, 2007: m37.5 million or 42.2%). The +8.3% year-on-year upturn in inventories is necessary to cover the expected growth in Delticom s revenues growth in To the end of the reporting period, receivables totalled m15.7 million, m10.3 million of which were accounts receivables and m5.4 million were other receivables. In the reporting period, bad debt lossed increased +50.6% year-on-year from m0.6 million to m0.9 million. The default rate (share of receivables losses and individual write-downs on revenues) remains low at 0.7% (H1 07: 0.6%). Debt totalled m52.9 million, 99.3% of which was current. The preponderant element here was accounts paypable (m43.4 million), which increased +15.3% year-on-year (June 30, 2007: m37.7 million). It was possible to sell large amounts of the warehoused goods in H1 08. As a result, working capital at the end of the reporting period totalled just m12.9 million (compared to m13.7 million on June 30, 2007). The operating cash flow for H1 08 was m9.1 million, up +57.9% year-on-year (H1 07: m5.8 million). In total, Delticom had cash and cash equivalents totaling m36.4 million on June 30, 2008 (June 30, 2007: m34.9 million). In the reporting period, Delticom made total investments of m372 thousand, m326 thousand of which 11

16 >> Delticom AG HALf year report 2008 > were in property, plant and equipment with the remaining m47 thousand in intangible assets. The main investments related to the acquisition of equipment for the warehouses. 2.3 Overall Opinion on the Economic Situation Delticom developed well during the first half With a growth in sales of +19.2% to m121.5 million, an increase of the consolidated net profits by +9.6% to m4.1 million and an increase of the operating cash flow to m9.1 million (+57.9% ) Delticom succeeded in combining strong growth, profitability and internal financing strength. 3 Risks In an environment of drastically increasing raw material and energy prices, some manufactures have announced to try to pass on the higher prices. Demand might therefore decrease slightly, but on the other hand there are no real substitutes for tyres. In addition, Delticom as a tyre dealer enjoys good purchasing conditions and has a strong focus on online trading, both resulting in an ability to offer goods at good prices. Therefore management assumes that changes in the price levels in Europe or overseas will have only a relatively minor impact on the business success. In the view of management, the current fiscal year offers neither any considerable risks nor opportunities not previously identified in Delticom s last annual report. 4 Forecast 4.1 Industry Situation The general market conditions for the industry will likely see little change over the rest of the year. Trade associations and experts are forecasting a slight increase - independent of the number of new registrations - in the number of registered cars. The mileage per tyre is likely to remain at approximately the same level. As a result, growth rates for the European replacement tyre market of between 1% and 3% are considered reasonable. Currently the BRV is calling for a rise in year-over-year sales for German car tyre sales of +1.5%, with increases of +0.8% and +2.4% projected for summer and winter tyre sales respectively. A prognosis for the entire European tyre market does not exist, however, Delticom s management believes there will be no significant difference in market developments between Germany and Europe. 12

17 4.2 Guidance On the basis of developments to date and continued European-wide trend towards ecommerce, the management reiterates its guidance for 2008 revenues at million m. Management is confident that the lower end of this target range can be achieved even if winter tyre sales are worse than currently expected, while the upper end of the target is seen as an ambitious but achievable goal. Against a backdrop of relatively unfavourable weather conditions in the first half of 2008, Delticom continued to invest in the expansion of its European market share. Based on current figures, management still believes that the company can increase its gross profit margin year-over-year and that an EBIT margin of between 5.0% and 6.0% is appropriate and achievable. 4.3 Overall Forecast The European online tyre business will become more and more attractive, and Delticom is well positioned to participate in this market sustained growth. The combination of business processes creates an efficient cross-border value chain. As the European market leader, Delticom enjoys good purchasing conditions and can react in a flexible fashion to variations in volume in individual countries. Due to the good bying conditions and the streamlined cost basis, Delticom will continue to offer a broad product range at attractive prices and grow profitably. In the medium term and increasing with size, further economies of scale can be achieved. In addition, the company has the means to quickly expand into new product groups and markets. The Managing Board expects that Delticom will experience positive, sustainable growth. 13

18 >> Delticom AG HALf year report 2008 > Consolidated Balance Sheet as of 30 JunE 2008 assets m thousand Non-current assets 2,720 3,579 Intangible assets 1,169 1,173 Property, plant and equipment 1,473 1,330 Financial assets 0 1,000 Other receivables Current assets 92,747 83,781 Inventories 40, ,581 Accounts receivable 10, ,356 Other receivables 5, ,303 Cash and cash equivalents 36, ,540 Assets 95,466 87,360 14

19 Shareholders equity and liabilities m thousand Equity 42,572 46,342 Subscribed capital 3,946 3,946 Share premium 31,743 31,706 Reserve from currency translation Retained earnings Net retained profits 6,727 10,518 Liabilities 52,894 41,018 Non-current liabilities Non-current provisions Deferred tax liabilities Current liabilities 52,539 40,674 Provisions for taxes 1,336 1,888 Other current provisions Accounts payable 43,437 31,696 Other current liabilities 7,756 6,753 Shareholders equity and liabilities 95,466 87,360 15

20 >> Delticom AG HALf year report 2008 > Consolidated Income Statement for the period from 1 January to 30 June 2008 m thousand Revenues 121, ,985 78,944 63,061 Other operating income 1, Total operating revenue 122, ,554 79,510 63,404 Cost of goods sold -92,427-77,871-60,000-47,110 Gross profit 30,452 24,683 19,510 16,294 Personnel expenses -2,501-2,088-1,339-1,124 Depreciation and amortization of intangible assets and depreciation of property, plant and equipment Other operating expenses -22,146-17,016-12,988-9,905 Earnings before interest and taxes (EBIT) 5,571 5,449 5,062 5,195 Financial expenses Financial income Net financial result Earnings before taxes (EBT) 6,056 6,041 5,357 5,516 Income taxes -1,954-2,299-1,740-2,141 Consolidated net income 4,103 3,743 3,618 3,375 16

21 Consolidated Cash Flow Statement for the period from 1 January to 30 June 2008 m thousand Earnings before interest and taxes (EBIT) 5,571 5,449 Depreciation and amortization of intangible assets and depreciation of property, plant and equipment Changes in other provisions Changes in inventories -5,055-16,724 Changes in receivables and other assets not allocated to investing or financing activity -2,057-2,599 Changes in payables and other liabilities not allocated to investing or financing activity 12,745 22,035 Interest received Interest paid Income tax paid -2,505-2,553 Cash flow from operating activities 9,101 5,763 Payments for investments in property, plant and equipment Payments for investments in intangible assets Proceeds from the disposal of financial assets 1,000 0 Cash flow from investing activities Dividends paid by Delticom AG -7,893-4,736 Increase in share premium due to stock options 37 0 Cash flow from financing activities -7,856-4,736 Changes in cash and cash equivalents due to currency translation Cash and cash equivalents at the start of the period 34,540 34,661 Changes in cash and cash equivalents 1, Cash and cash equivalents - end of period 36,397 34,874 17

22 >> Delticom AG HALf year report 2008 > Statement of Changes inshareholders Equity as of 30 june 2008 Accumulated profits / losses m thousand Subscribed capital Share premium Reserve from currency translation Retained earnings Net retained profits total Total equity as of 1 January ,946 31, ,905 7,105 42,758 Currency translation differences -1-1 Dividends paid -4,736-4,736-4,736 Consolidated net income 3,743 3,743 3,743 as of 30 June ,946 31, ,912 6,112 41,764 as of 1 January ,946 31, ,518 10,717 46,342 Increase in share premium due to stock options Currency translation differences Dividends paid -7,893-7,893-7,893 Consolidated net income 4,103 4,103 4,103 as of 30 June ,946 31, ,727 6,927 42,572 18

23 Consolidated Notes For the first half year 2008 Notes to the Consolidated Interim Financial Statements Reporting Companies The Delticom group primarily sells tyres via the Internet. Delticom has two divisions: Wholesale and ecommerce. In the Wholesale segment, manufacturers tyres are sold to wholesalers and procured for the ecommerce segment, including own-name brands. In the ecommerce segment, tyres are sold to retailers, workshops and end consumers via 93 online shops in 35 countries in Europe, the USA, Canada and Japan (test shop). Basis of Presentation This consolidated interim report as of June 30, 2008 has been prepared according to International Financial Reporting Standards. The accounting and valuation methods for the interim financial statements are in line with IAS 34, GAS 6 and Section 63 of the Börsenordnung der Frankfurter Wertpapierbörse (Frankfurt Stock Exchange Rules). During preparation of the interim financial statements and the identification of comparable figures for the previous year, as a rule the same principles of consolidation and accounting and valuation methods were applied as in the 2007 consolidated financial statements. A detailed description of these methods has been published in the notes to the consolidated financial statements in the 2007 annual report. This is also available online at According to the provisions of Section 37x (3) of the Wertpapierhandelsgesetz (WpHG - German Securities Trading Act), the Delticom Group s interim report comprises consolidated interim financial statements and a group interim management report. The group interim management report was prepared in accordance with the relevant provisions of the WpHG. IFRIC 11, 12 and 14 are mandatory since January 1, 2008 and have been applied accordingly. Group of Consolidated Companies The group of consolidated companies comprises Delticom AG, with its registered office in Hanover, registered at Hanover local court as well as four companies where Delticom AG holds a 100% interest. The business purpose of Delticom Tyres Ltd. in Oxford (United Kingdom) and Delticom North America Inc. (Wilmington, Delaware/USA) is online tyre dealing. The German subsidiary Reifendirekt GmbH in Hanover buys advertising services for the Delticom group. NETIX SRL in Timisoara (Romania) supplies services to third parties, e.g. in the area of call-center operations. Calculations of Earnings per Share Earnings per share are calculated according to IAS 33. In the fiscal year there were 5,270 potential shares (financial instruments and other agreements that authorize the bearer to subscribe to ordinary shares) from the tranche dated November 22, 2007 as well as 12,500 potential shares from the tranche dated May 8, Because the strike price of the tranche from November 22, 2007 is higher than the 19

24 >> Delticom AG HALf year report 2008 > average share price since the date the options were issued on November 22, 2007 the tranche thus has no dilutive effect on earnings per share. The strike price of the tranche dated May 8, 2008 is lower than the average share price since the date the options were issued on May 8, 2008, therefore this tranche is used to calculated diluted earnings per share. However, when calculated there is no difference between the basic earnings per share and the diluted earnings per share. The calculation of earnings per share was based on net income after taxes as numerator and the weighted average number of shares issued and potential shares outstanding in the fiscal year as denominator. For the diluted earnings per share 3,950,161 shares and for the undiluted earnings per share 3,946,480 shares were used as denominator. Dividend Payment On May 7, 2008, a dividend of m 2.00 for the fiscal year 2007 was distributed to the shareholders. Primary Segment Reporting for the period from 1. January 2007 to 30. June 2007 m thousand ecommerce Wholesale not allocated Group Revenues 94,120 7, ,985 Other operating income Cost of goods sold -71,004-6, ,871 Gross profit 23,478 1, ,683 Personnel expenses ,096-2,088 Depreciation and amortization thereof property, plant and equipment thereof intangible assets Other operating expenses -15, ,463-17,016 thereof bad debt losses and individual write-downs Earnings before interest and taxes 7, ,434 5,449 Net financial result 592 Income taxes -2,299 Consolidated net income 3,743 20

25 for the period from 1 January 2008 to 30 June 2008 m thousand ecommerce Wholesale not allocated Group Revenues 112,936 8, ,533 Other operating income ,346 Cost of goods sold -84,691-7, ,427 Gross profit 28, ,452 Personnel expenses ,370-2,501 Depreciation and amortization thereof property, plant and equipment thereof intangible assets Other operating expenses -19, ,291-22,146 thereof bad debt losses and individual write-downs Earnings before interest and taxes 8, ,018 5,571 Net financial result 485 Income taxes -1,954 Consolidated net income 4,103 Secondary Segment Reporting Revenues m thousand Germany 43,041 41,279 Other EU countries 61,494 48,196 USA and rest of world 16,998 12,510 Total 121, ,985 21

26 >> Delticom AG HALf year report 2008 > Other operating expenses m thousand Transportation costs 10,375 8,078 Warehousing costs 1,167 1,242 Credit card fees Bad debt losses and individual write-downs Marketing costs 3,285 2,783 Operations centre costs 1,895 1,325 Rents and overheads Financial and legal costs IT and telecommunications Expenses from exchange rate differences 1, Other Total 22,146 17,016 Related party disclosures Related parties within the meaning of IAS 24 are the members of the Management Board and the Supervisory Board of Delticom AG, as well as the majority shareholders Binder GmbH and Prüfer GmbH. All transactions with related parties are contractually agreed and performed at conditions that would apply between third parties (arm s length transaction). During the first half of 2007 there were no changes with a material impact on the financial position and results of operations. Delticom AG purchased goods and services from related parties amounting to m174 thousand (previous year: m632 thousand). The group sold goods and services to related parties for a total of m155 thousand (previous year: m468 thousand). Contingent liabilities Obligations from order commitments totalling m5,309 thousand (31 December 2007: m3,547 thousand) are due within one year. Obligations from operating leases and other contingent liabilities are due in following periods in the total amount of m10,049 thousand (31 December 2007: m8,688 thousand), of which m 3,255 thousand (31 December 2007: m3,217 thousand) are due within one year and m5,325 thousand (31 December 2007: m4,307 thousand) are due between one and five years. 22

27 Additional information Number of employees In the reporting period, Delticom had an average of 79 employees. This calculation is based on the number of employees taking into account the number of hours worked. Seasonal effects In many countries, business with car replacement tyres depends to a large extent on the seasons with their different weather and road conditions. For example, the business in the northern parts of Europe and in German-speaking countries is characterized by two peak periods - the purchase of summer tyres in spring and winter tyres in early winter. Volume is generally weaker in the first quarter, as most winter tyres are bought and fitted with the first snow, and thus before the end of the year. The second quarter is characterized by strong sales: the weather in April and May is usually quite warm and car drivers buy their new summer tyres. The third quarter is a transitional quarter between the summer and winter business, with unit sales again being somewhat weaker. In most European countries, the last quarter generates the highest sales as car drivers face difficult road conditions and become aware of the fact that they need new tyres. German Corporate Governance Code The declaration required by Section 161 of the Aktiengesetz (AktG - German Public Limited Companies Act) is made accessible to shareholders on our Web site: Key events after the balance sheet date There were no events of particular importance after the balance sheet date. 23

28 >> Delticom AG HALf year report 2008 > To Delticom AG, Hanover (1) We have reviewed the condensed consolidated interim financial statements - comprising the balance sheet, income statement, cash flow statement, statement of changes in equity and selected explanatory notes - and the interim group management report of Delticom AG, Hanover for the period from January 1, 2008 to June 30, 2008 which are part of the half-year report pursuant to (Article) 37w WpHG ( Wertpapierhandelsgesetz : German Securities Trad-ing Act). The preparation of the condensed consolidated interim financial statements in accor-dance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent Company s Board of Managing Directors. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review. We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a fi-nancial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion. Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material re-spects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. Hanover, August 11, 2008 PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft sign. (Günter Benz) Wirtschaftsprüfer sign. (ppa. Thomas Monecke) Wirtschaftsprüfer (German Public Auditor) (German Public Auditor) (1) Translation of the auditor s report issued in German language on the consolidated financial statements prepared in German language by the management of Delticom AG, Hanover. 24

29 Declaration by legal representatives To the best of our knowledge, we declare that, according to the principles of proper consolidated abbreviated interim reporting applied, the consolidated interim financial statements provide a true and fair view of the Group s net worth, financial position and results of operations, that the consolidated interim management report presents the company s business including the results and the Group s position such as to provide a true and fair view and that the major opportunities and risks of the Group s anticipated growth for the remaining fiscal year are described. Hanover, August 11, 2008 Rainer Binder Frank Schuhardt Philip von Grolman

30 >> Delticom AG HALf year report 2008 > Financial Calender German Equity Forum monthly report 2008 Imprint Publisher Delticom AG Brühlstraße Hanover Germany Contact Investor Relations Melanie Gereke Brühlstraße Hanover Phone: Design & Consulting IR-One AG & Co., Hamburg 26